Financial Exploration from the Treasurer of World Access Healthcare - Case Study Example

Topic: Multinational Financial Management This is a of financial exploration from the treasurer of World Access Healthcare, Inc., to the World Access Healthcare, Inc. board of directors, in regard to our corporate directive, as it applies to expansion. Today, we are introducing a financial proposal that will encompass and outline how these proposed steps below will take us from being a national corporation into our corporate goal of being a multi-national, multi-billion dollar empire, as we utilizing two chief financial avenues in order to complete this task. One, the mezzanine loan will be enacted in order to achieve our expansion goals, in the amounts and for the reasons prescribed below. Two, the asset-backed commercial paper will also be utilized in this plotted expansion effort, as prescribed below as well. With that, we need to discuss our corporate instruments of financial expansion, and the elements that those financial instruments will incorporate. Within the approaches chosen for financial expansion, we need to develop a one, three and five year financial approach, with a ten year revamping contingency, if still in operation strongly, toward our goal in expanding in order to become a multi-billion dollar, multinational organization. Right now, we are going to focus on the three to five year tier of our planned goals. As the appointed treasurer of World Access Healthcare, Inc., the timing of this report and expansion is critical. Thus, let’s begin to outline, chart and discuss potential financial avenues, in detail, as well as outline or highlight their benefits in regard to expansion. First, let’s get familiar with the terminology at hand. An asset backed commercial paper has a similar premise as a promissory note-a note in which a person (or business entity) gets promised payment by a company or corporate body in lieu of actual cash or currency payment during a rocky receivable period or a cash poor time. However, an asset backed commercial paper is strengthened more than that of a promissory note because it actually contains some actual capital or segue to that capital in some manner, such as through a receivables guarantee, or a cash asset assessment. In a receivables backed, asset backed commercial paper, your business basically states that it has in it’s function, a proven receivable track record of meeting the note of asset backed commercial paper, through receivables. This does two things. One, it allows the commercial note or paper to be stronger than just a financial paper contract. Also, it allows two key components of a contract to form which are an offer, backed by a consideration (a form of money). Two, it allows a company or financial institution to have more than a companies corporate reputation and past record of it’s receivables as a base in which they operate, further securing the asset backed commercial paper (ABCP). Basically, this note, as described in detail and (Fritz, et al, Sept. 29, 2005, Reprinted from Ratings Direct) is credit extended with an asset back up feature in the form of a note. As aptly stated (Fritz, et al 2005), “ABCP conduits are typically established and administered by major commercial banks to provide flexible and competitive low-cost financing to their customers. ” Utilizing the features of an asset backed commercial paper, the venue that is needed for this transaction is a singe seller conduit, which is, (according to an excerpt from www.ratingsdirect.com), “A single-seller ABCP conduit is a limited-purpose, bankruptcy-remote entity that issues CP as a way to finance the assets of a single originator. Such conduits are most suitable for asset originators with large pools.” Here is the explanation of an ABCP which is the accepted acronym for asset backed commercial paper, summarized, in layman’s terms. (Fritz, et al, Sept. 29, 2005, Reprinted from Ratings Direct) Even with other choices present, this is one way to effectively finance our corporate expansion goals. We can ask for a fixed low interest rate a couple of points under prime, maybe 5-8%, when we obtain the service. Next, we can ask for a loan term of five years, as we are expanding at an alarming rate, so our assumed rate of payback at this time will be higher than the original loan amount of principal, $464,100., plus the interest. With that plan in place, paying the loan back at a double rate, we can get another loan within three years, as it will only take us 2 ½ years to pay off the original 5 year loan at our current pace. Next, we will also look at our other chosen avenue of financial instrumentation that we will utilize toward our own financial benefit, which is a mezzanine loan. Even though these loans can be risky to our corporation, that risk is actually a fail safe to our corporate success in one way. For example, since mezzanine loans offer loans based on the stock of the company, if we are going belly up, then our company is not at a higher risk if our mezzanine loan defaults. Therefore, if our firm is not solvent enough to keep itself running without severely paring down, our stocks would become of less value anyway. Hence, if the corporate stocks lost value, it would take some sting of the mezzanine loan structure defaulting, if the company was failing. In the mezzanine loan, although the brokers do not like to give less than $1 million dollars, we are still asking the same base loan amount that we are asking for in regard to the ABCP, which is $464,100.00. Again, the strategy would be to ask for this principal loan amount, coupled with a lower than prime fixed interest rate, at 5-7%, utilizing our current strategy in making the payments two and a half years in advance by doubling the payment, in order to cut the expected interest expense in half. Thus making our corporation able to access additional loans as needed, in the future. In contrast, almost always in regard to business, flux is expected, so that piece of the mezzanine loan that might take out some of the risk, also adds it back in when you consider that getting close to insolvency within a corporation is almost expected at some time in a businesses corporate life, according to antiquated economic factors such as the depression, or smaller indicators of financial flux. The mezzanine loans feature as we are going to apply it is outlined below by Blackburne and states an example, (http://www.c-loans.com/mezzanine_loans.html, George Blackburne, III is a real estate attorney, the founder of Blackburne & Brown Mortgage Company, Inc.) “The third and final use of mezzanine loans is for new construction…”  Even though we are not going to go for a million dollar loan, using the mezzanine loan, we are going to get close to asking for a million dollars collectively in order to expand our own currently strong receivable efforts in the future by opening a few more branches of our corporation in centrally located cities in order to gain a market advantage over our competitors now, before market saturation. Starting with plotting out the mezzanine loan, if our current stocks are worth $91.00 each, and we have 10,000 of them already purchased, that totals paper money available of $910,000.00 total, with our corporate share being 51 % of that total, which is, in money, a $464,100.00 estimated value. This estimated stock value would give our company a monetary paper edge of $910,000.00, in paper collateral when dealing with our mezzanine loan, or $464,100. in actual available stock solvency available, when utilizing our own corporate shares, pending they can be bought out, if necessary. The proposed amount to gain from each instrument will be the equivalent to our corporate stock shares times two, which separately is $464,100. This amount will be used to make two loans, for a total amount of $928,200.00. This amount will be utilized in forming our proposed expansion plan as outlined above. In seven years, we will revisit this plan to see how it is going in terms of proposed meets actual. Until then, and intermittently, we will closely monitor the progress of the two loans and their proposed outcomes, and see how they differ or are on the mark for our proposed expansion effort. References Fritz, et al, Sept. 29, 2005, Reprinted from Ratings Direct http://www.c-loans.com/mezzanine_loans.html, George Blackburne, III is a real estate attorney, the founder of Blackburne & Brown Mortgage Company, Inc* www.ratingsdirect.com *Blackburne requires this tag line in order to reprint his quotes or cite his work in this format Read More